Strategic Management Final Exam

The goal-directed actions managers take in their quest for competitive advantage when competing in a single product market.

Generic business strategy that seeks to create the same or similar value for customers at a lower cost.

Decreases in cost per unit as output increases.

Raw material, Capital, labor, IT

Increases in cost per unit when output increases.

Learning drives down costs less time to produce same output. Learn to be more efficient. People learn from cumulative experience

When technology is changed while output is constant

Generic business strategy that seeks to create higher value for customers than the value that competitors create.

Adding features can change perceived value of the product.

Can change the perceived value of the products.

add value to a product when they are used in tandem.

Choices between a cost or value position. Such choices are necessary because higher value creation tends to generate higher cost.

Business-level strategy that successfully combines differentiation and cost-leadership activities using value innovation to reconcile the inherent trade-offs.

Abstract concepts or research findings

Transformation of an idea into product or process

Commercialization of an invention by entrepreneurs

Copying a successful innovation

Undertake economic risk to innovate-- new products, processes, and organizations

Agents who introduce change into the competitive system

The pursuit of innovation using tools and concepts from strategic management

The pursuit of social goals AND Creation of a profitable business

New ways to produce existing products or deliver existing services.

New or recombined knowledge embodied in new products.

Many innovators do not successfully transition from one stage of the industry life cycle to the next.

2.5% of the total market potential Often have an engineering mind Pursue new technology proactively Enjoy using beta versions

13.5% of the total market potential, Demand is driven by: Imagination and creativity, and Intuition and imagination.

34% of the total market potential Main consideration: "Is this practical" Weigh the benefits and costs carefully.

34% of the total market potential. Not as confident in their ability to master the technology. Prefer to wait until standards have emerged. Prefer to buy from well-established firms.

16% of total market potential Adopt a new product only if necessary Generally don't want new technology Typically not pursued as future customers Their demand is small

A conceptual model to categorize innovations: Market (existing/new) dimension or Technology (existing/new) dimension.

Leverages existing technology into new markets. Alters the architecture of a product. A new product, with known components, used in a novel way.

Draws on novel methods and materials. Forms from an entirely new knowledge base, or Forms from a recombination of existing knowledge. Targets new markets with new technology

Builds on established knowledge base. Results from steady improvement. Targets existing markets with existing technology. Example: Gillette blades: from one to six!

Leverages new technologies in existing markets. New product / process meet existing customer needs.

is resistance to changes in the status quo.

A firm's ability to Understand external technology developments, evaluate them, and Integrate them into current products or create new ones

The decisions that senior management makes and the goal-directed actions it takes to gain and sustain competitive advantage in several industries and markets simultaneously.

The firms ownership of its production of needed inputs or of the channels by which it distributes its outputs.

An increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes.

Where should the company compete geographically in terms of regional, national, or international markets

• Increase profits
• Lower costs
• Increase market power
• Reduce risk
• Motivate management

A theoretical framework in strategic management to explain and predict the boundaries of the firm, which is central to formulating a corporate strategy that is more likely to lead to competitive advantage.

Costs pertaining to organizing an economic exchange within a hierarchy; also, called administrative costs.

the costs of searching for a firm or an individual with whom to contract, and then negotiating, monitoring, and enforcing the contract.

Situation in which an agent performing activities on behalf of a principal pursues his or her own interests.

Situation in which one party is more informed than another because of the possession of private information.

Voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services.

A long-term contract in which a franchisor grants a franchisee the right to use the franchisor's trademark and business processes to offer goods and services that carry the franchisor's brand name.

A stand-alone organization created and jointly owned by two or more parent companies.

A form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property.

The most-integrated alternative to performing an activity within one's own corporate family. The corporate parent owns the subsidiary and can direct it via command and control. Transaction costs that arise are frequently due to political turf battles, which may include the capital budgeting process and transfer prices, among other areas.

Changes in an industry value chain that involve moving ownership of activities upstream to the originating (inputs) point of the value chain.

Changes in an industry value chain that involve moving ownership of activities closer to the end (customer) point of the value chain.

• Lowers costs
• Improves quality
• Facilitates scheduling and planning
• Facilitates investments in specialized assets
• Secures critical suppliers and distribution channels

When the markets along the industry value chain are too risky and alternatives too costly in time or money.

A way of orchestrating value activities in which a firm is backwardly integrated but also relies on outside-market firms for some of its supplies and/or is forwardly integrated but also relies on outside market firms for some of its distribution.

Moving one or more internal value chain activities outside the firms boundaries to other firms in the industry value chain.

Corporate strategy in which a firm is active in several different product markets.

Corporate strategy in which a firm is active in several different countries.

Corporate strategy in which a firm is active in several different product markets and several different countries.

Firm derives more than 95 percent of its revenues from one business.

Derives between 70 and 95 percent of its revenues from a single business, but it pursues at least one other business activity that accounts for the remainder of revenue.

Corporate strategy in which a firm derives less than 70 percent of its revenues from a single business activity and obtains revenues from other lines of business that are linked to the primary business activity

A kind of related diversification strategy in which executives pursue only businesses where they can apply the resources and core competencies already available in the primary business.

A kind of related diversification strategy in which executives pursue various businesses opportunities that share only a limited number of linkages.

Corporate strategy in which a firm derives less than 70 percent of its revenues from a single business and there are few, if any, linkages among its businesses.

A company that combines two or more strategic business units under one overarching corporation; follows an unrelated diversification strategy.

Conceptual model that aids firms in deciding whether to pursue internal development (build), enter a contractual arrangement or strategic alliance (borrow), or acquire new resources, capabilities, and competencies (buy).

How relevant are existing internal resources to solving the resource gap?

How tradable are the targeted resources that may be available externally?

How close do you need to be to your external resource partner?

How well can you integrate the targeted firm should you determine you need to acquire the resource partner?

A voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services.

Partnership in which at least one partner takes partial ownership in the other.

Partnership based on contracts between firms.

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The joining of two independent companies to form a combined entity.

The purchase or takeover of one company by another; can be friendly or unfriendly.

Acquisition in which the target company does not wish to be acquired.

The process of merging with competitors, leading to industry consolidation.

The process of closer integration and exchange between countries and peoples worldwide, made possible by falling trade and investment barriers, advances in telecommunications and reductions in transportation costs.

Part of a firm's corporate strategy to gain and sustain competitive advantages when competing against other foreign and domestic companies around the world.

A company that deploys resources and capabilities in the procurement, production, and distribution of goods and services in at least two countries.

A firms investment in value chain activities abroad. Liability of foreignness- additional costs of doing business in an unfamiliar cultural and economic environment and of coordinating across geographic distances.

Strategy framework that juxtaposes the pressures an MNE faces for cost reductions and local responsiveness to derive four different strategies to gain and sustain competitive advantage when competing globally.

strategy that involves leveraging home-based core competencies by selling the same products or services in both domestic and foreign markets (Harley Davidson, Rolex, Starbucks)

Strategy pursues by MNEs that attempts to maximize local responsiveness with the intent that local consumers will perceive them to be domestic companies. (Bridgestone, Nestle, Philips)

Strategy attempting to reap significant economies of scale and location economies by pursuing a global division of labor based on wherever best-of-class capabilities reside at the lowest cost.  (Infosys, Lenovo, Siemens Energy)

Strategy that attempts to combine the benefits of a localization strategy(High local responsiveness) with those of a global standardization strategy (Lowest-cost position attainable)

The process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization.

A key building block of organizational design that determines how the work efforts of individuals and teams are orchestrated and determines how resources are distributed

Describes the degree to which a task is divided into separate jobs.  Larger firms have higher degrees of specialization; smaller firms tend to be less specialized.

Captures the extent to which employee behavior is steered by explicit and codified rules and procedures.  Necessary for consistent results, i.e. Pilot training, call centers.  Can slow decision making and hinder customer service.

The degree that decision making is concentrated at the top of the organization.  Top down strategic planning in more centralized, emerging strategy in decentralized

Determines the formal, position-based reporting lines of who reports to whom.  The span of control is broad with wide when one manager supervises many.

The collectively shared values and norms of an organizations members.

What is considered important

Are appropriate employee attitudes and behaviors.

A firms resistance to change the status quo can lead to the firms subsequent failure.

High specialization and formalization, tall hierarchies, central decision making.

Low degree of specialization and formalization, flat organizational structure, decentralized decision making.

Generally used by smaller firms with low complexity, founders make strategic decisions and run day-to-day operations, professional managers are not in place.

Employees are grouped into functional areas based on domain expertise often corresponding to distinct stages in the value chain. Functional leaders report to the CEO.  Allows for cost leadership, differentiation, and Blue Ocean.

Consists of several distinct strategic business units, each with own profit and loss responsibility, operating independently. Each SBU is led by a CEO.

Firm is organized per SBUs and has a second dimension of organizational structure consisting of different geographic areas.  French employee reports to the CEO and European GM

a firm's ability to address trade-offs not only at one point but also over time. It encourages managers to balance exploitation and exploration.

An organization able to balance and harness different activities in trade-off situations

Applying current knowledge to enhance firm performance in the short term

searching for new knowledge that may enhance a firms future performance.

Shareholders-the providers of the necessary risk capital and the legal owners of public companies- have the most legitimate claim on profits.

A model proposing that managers have a dual focus on shareholder value creation and value creation for society.

A system of mechanisms to direct and control an enterprise in order to ensure that it pursues its strategic goals successfully and legally.

A theory that views the firm as a nexus of legal contracts

A situation that occurs when information asymmetry increases the likelihood of selecting inferior alternatives.

A situation in which information asymmetry increases the incentive of one party to take undue risks or shirk other responsibilities because the costs incur to the other party.

The centerpiece of corporate governance, composed of inside and outside directors who are elected by the shareholders.

Situation where the CEO of a publicly traded company is also the chairperson of the board of directors.

Board members who are generally part of the company's senior management team; appointed by shareholders to provide the board with necessary information pertaining to the company's internal workings and performance.

Board members who are not employees of the firm, but who are frequently senior executives from other firms or full-time professionals.

An incentive mechanism to align the interests of shareholders and managers, by giving the recipient the right (but not the obligation) to buy a company's stock at a predetermined price sometime in the future.

An agreed-upon code of conduct in business, based on societal norms

A single investor or group of investors buys, with the help of borrowed money (leveraged against the company's assets), the outstanding shares of a publicly traded company to take it private.

Defensive provisions to deter hostile takeovers by making the target firm less attractive.